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| Marvel Parts, Inc., manufactures auto accessories. One of the company’s products is a set of seat covers that can be adjusted to fit nearly any small car. The company has a standard cost system in use for all of its products. According to the standards that have been set for the seat covers, the factory should work 1,030 hours each month to produce 2,060 sets of covers. The standard costs associated with this level of production are: |
| Total | Per Set of Covers |
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| Direct materials | $ | 39,140 | $ | 19.00 | |
| Direct labor | $ | 9,270 | 4.50 | ||
| Variable manufacturing overhead (based on direct labor-hours) |
$ | 3,502 | 1.70 | ||
| $ | 25.20 | ||||
| During August, the factory worked only 640 direct labor-hours and produced 1,600 sets of covers. The following actual costs were recorded during the month: |
| Total | Per Set of Covers |
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| Direct materials (5,500 yards) | $ | 29,920 | $ | 18.70 | |
| Direct labor | $ | 7,520 | 4.70 | ||
| Variable manufacturing overhead | $ | 4,000 | 2.50 | ||
| $ | 25.90 | ||||
| At standard, each set of covers should require 2.50 yards of material. All of the materials purchased during the month were used in production. |
| Required: |
| 1. | Compute the materials price and quantity variances for August. (Input all amounts as positive values. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e, zero variance).) |
| 2. | Compute the labor rate and efficiency variances for August. (Input all amounts as positive values. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e, zero variance).) |
| 3. | Compute the variable overhead rate and efficiency variances for August. (Input all amounts as positive values. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e, zero variance).) |
Expert Answer
| Data for Resource Variance | ||||||||||
| Budgeted | Standard | Actual | ||||||||
| Quantity/Hrs | Rate | Amount | Quantity/Hrs | Rate | Amount | Quantity/Hrs | Rate | Amount | ||
| Material(Yard) | 5150 | 7.6 | 39140 | 4000 | 7.6 | 30400 | 5500 | 5.44 | 29920 | |
| Labour | 1030 | 9 | 9270 | 800 | 9 | 7200 | 640 | 11.75 | 7520 | |
| V. Overhead | 1030 | 3.4 | 3502 | 800 | 3.4 | 2720 | 640 | 6.25 | 4000 | |
| Total | 51912 | 40320 | 41440 | |||||||
| 1. Computation of Variances | ||||||||||
| a) | Material Price Variance = (Standard Price – Actual Price ) Actual Quantity | |||||||||
| = (7.6-5.44) * 5500 | ||||||||||
| =11880/- Favourable | ||||||||||
| Material Quantity Variance = (Standard quantity – Actual Quantity ) Standard Price | ||||||||||
| = (4000 – 5500 )7.6 | ||||||||||
| = 11400 Unfavorable | ||||||||||
| b) | Labour Rate Variance = (Standard Rate – Actual Rate) Actual Hrs Worked | |||||||||
| = (9-11.75)640 | ||||||||||
| = 1760 Unfavorable | ||||||||||
| Labour Efficiency Variance = (Standard Hrs. – Actual Hrs) Standard Rate | ||||||||||
| = (800-640 )9 | ||||||||||
| =1440 Favorable | ||||||||||
| c) | Variable Overhead(OH) Rate Variance = (Standard Rate – Actual Rate ) Actual Machine Hrs Worked | |||||||||
| =(3.4-6.25)640 | ||||||||||
| =1824 Unfavorable | ||||||||||
| Variable OH Efficiency Variance = (Standard hrs. – Actual Hrs) Standard Rate | ||||||||||
| = (800-640)3.4 | ||||||||||
| =544 Favourable | ||||||||||
